A €31bn deal on bank IOU's is the focus of the Government's efforts to cut the cost of Ireland's bank debt -- and save the country from a second bank bailout.

Since March 2010, Ireland has issued €31bn in IOUs -- also known as promissory notes -- to shore up the balance sheets of the failed Anglo Irish Bank and Irish Nationwide Building Society, the group now known as the Irish Bank Resolution Corporation (IBRC).

If the Government could strike a deal to tap into the EU's bailout fund, the European Financial Stability Facility (EFSF), to pay off these IOUs, it would save the country about €4bn in interest over the next five years.

It would also reduce the amount of money the Government would have to raise by €3bn a year after 2013 -- when the money from the current EU-IMF Irish bailout deal runs dry, according to Dermot O'Leary, chief economist with Goodbody Stockbrokers.

"Both benefits would improve Ireland's chances of returning to funding markets at the end of the current IMF-EU programme," said Mr O'Leary.

The Fine Gael/Labour Government has come under renewed pressure to get concessions from the EU to reduce the cost of Ireland's debt since EU leaders struck a deal to resolve the European debt crisis last Wednesday.

In the latest deal, EU leaders agreed to beef up the firepower of the EU bailout fund to €1trillion and to force banks to take a 50 per cent haircut on Greek debt. The haircut has substantially cut the size of Greek's debt.

"Recent decisions mean that the EFSF will soon be allowed to provide funding for the recapitalisation of banks in Europe," said Mr O'Leary.

"Had this facility been available in 2010, it may have been used by the Irish government to recapitalise Anglo Irish Bank and Irish Nationwide. Instead, Ireland now has to pay €47.6bn between now and 2031 to pay capital and interest on the promissory notes."

The average interest rate on the IOUs -- which are currently to be repaid over the next 20 years -- is 5.8 per cent. At this rate, Ireland faces an interest bill of €17bn -- a bill described by the Finance Minister Michael Noonan last week as "very expensive".

"We think there is a way of reengineering that [the deal on the IOUs] which would make it less expensive," Mr Noonan said.

A spokesman for the Department of Finance said last Friday that technical discussions about the IBRC promissory notes "are under way" between officials in the Department of Finance, the European Central Bank and European Commission.

Among the options being discussed are a cut in the interest rate -- and a longer term over which to repay the massive loan.

In a radio interview last week, Mr Noonan hinted that he was seeking to repay any loan for the IOUs over 30 rather than 20 years.

A deal on the IOUs could speed up the winding down of the IBRC, according to Stephen Lyons, credit analyst with Davy.

"Restructuring the promissory notes could shrink IBRC's balance sheet by €29bn," said Mr Lyons. "At a stroke, the bank's assets would be halved."